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Affordable Care Act Remains in Effect, Along with ESR Provision, After Appeals Court Ruling

The U.S. Court of Appeals for the Fifth Circuit upheld a District Court decision in Texas v. U.S. that rendered the Affordable Care Act individual mandate unconstitutional. They remanded the case back to the lower court for further analysis. However, the court of appeals did not invalidate the rest of law, so employers still have to meet obligations under the law.
Gavel and stethoscope represents healthcare in the court system

Editor's note: The U.S. Supreme Court agreed to take up the case in their next term, which begins in October 2020. Although a decision is not expected until 2021, this brings the Affordable Care Act into the spotlight during the presidential election in November.

  • U.S. Court of Appeals for Fifth Circuit upholds Texas U.S. District Court’s ruling that the ACA individual mandate is unconstitutional.
  • Fifth Circuit decision did not invalidate ACA.
  • Case remanded back to lower court to further analyze which components of ACA can be separated from the individual mandate.
  • Appeal expected by Democrat-led states.
  • Employers and individuals should continue to meet obligations under the law.

Following a majority decision by the U.S. Court of Appeals for the Fifth Circuit on Dec. 18, 2019, the Affordable Care Act, including the employer shared responsibility provisions, remain in effect. For employers, nothing has changed. They must continue to meet their ACA reporting requirements, including:

  • Furnishing 1095-C forms to applicable employees
  • Filing 1094-C and 1095-C forms by their deadlines to the IRS

The appeals court, in a 2-1 decision, agreed with the U.S. District Court in Texas that the ACA’s individual mandate provision became unconstitutional when the 2017 Congress reduced the penalty to zero ($0) and it could no longer be considered a tax under Congress’ taxing authority.

However, the appeals court did not invalidate the ACA, as the Texas court did in its 2018 decision when the judge ruled that the remainder of the ACA could not be separated from the individual mandate. In that decision, the court did not issue an injunction to stop the enforcement of the ACA, so the law remained intact.

As part of the appeals court ruling in 2019, the case has been remanded back to the lower court to further analyze which ACA provisions are so intertwined with the individual mandate provision that they cannot be separated. The appeals court also directed the lower court to further consider the 2017 Congress’ intent when it reduced the individual mandate penalty to zero ($0).

“The rule of law demands a careful, precise explanation of whether the provisions of the ACA are affected by the unconstitutionality of the individual mandate as it exists today,” the court wrote in issuing its decision.

What do employers and individuals need to do about ACA?

In addition to meeting their obligations under the ESR provision of the ACA, employers should note that gathering complex data across multiple departments from payroll and benefits through human resources can be time consuming. Employers should not delay or dismiss meeting their obligations as the penalties can be hefty and the response to the IRS is difficult and time-consuming if the information was not accurate the first time.

What's next?

The Fifth Circuit’s court ruling is expected to be appealed. Some media are reporting that attorneys general from democrat-led states might appeal to the U.S. Supreme Court. Such a review by the Supreme Court, if it happens, most like will not occur until after the 2020 elections.

Paychex will continue to monitor developments that may impact the ACA.

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Laurie Savage is Senior Compliance professional, leading robust legislative research efforts analyzing intricate policy, including the Affordable Care Act (ACA), paid leave, tax reform and recently, legislation responding to the COVID-19 pandemic.
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* This content is for educational purposes only, is not intended to provide specific legal advice, and should not be used as a substitute for the legal advice of a qualified attorney or other professional. The information may not reflect the most current legal developments, may be changed without notice and is not guaranteed to be complete, correct, or up-to-date.

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